The Global Cities of the Future 2016/17 report has ranked the city of Cape Town in South Africa as the top city in Africa for its foreign direct investment (FDI) strategy. Published on an annual basis, the report is produced by Foreign Direct Investment (fDi) Intelligence, a division of the Financial Times.

Overall, Cape Town was ranked number 21 with Edinburg (Scotland), Chicago (USA) and Brisbane (Australia) taking the top three rankings. In total 25 cities were ranked and the cities of Budapest (Hungary), Cologne (Germany), Sao Paulo (Brazil) and Hamburg (Germany) featured the index below Cape Town. Montreal in Canada was ranked immediately above Cape Town in 20th position overall.

Speaking of the ranking, Alderman Ian Neilson, the City of Cape Town’s Executive Deputy Major, has said “This accolade is indeed a massive feather in Cape Town’s cap as it recognises all the ongoing efforts made by the City and its private sector partners to ensure that Cape Town is on the international map for business and investment.”

On the importance of attracting foreign investment he added that “Attracting investment has been part of our strategy since 2006 where we set out to engage with the international community to promote Cape Town as an ideal place to invest so that we can create much-needed jobs for our people.”

Cities, like Cape Town, can play a vital role in job creation, poverty alleviation and promoting sustainable development. Concerning Cape Town Neilson believes that “The city plays contributes to economic growth by providing stable governance, clear policy direction, delivery of infrastructure, support services, investment promotion, facilitation, economic research and striving to reduce the administrative burden of doing business.”

Although he is proud of Cape Town’s ranking and achievement he does not want the city to rest on its laurels. In this regard, he also spoke about the recent launch of the Invest Cape Town initiative. It aims to position Cape Town as a globally competitive business destination in the world. According to Neilson it is already beginning to pay dividends. He says “A number of companies [have already set up their] headquarters in Cape Town. Cape Town is home to most South African retail giant headquarters and Investment Houses. We are the green hub of Africa, accounting for most of the local manufacturing for the national renewable energy programme”.

The Organisation for Economic Co-operation and Development (OECD) notes that FDI “Is an integral part of an open and effective international economic system and a major catalyst to development.” It also notes that multiple benefits can arise from FDI and that they are not just strictly economic ones. “Given the appropriate host-country policies and basic level of development, a preponderance of studies shows that FDI triggers technology spillovers, assists human capital formation, contributes to international trade integration, helps create a more competitive business environment and enhances enterprise development” according to the OECD. Furthermore, FDI can lead to improved environmental and social conditions in the host country such as through the transfer of cleaner technologies.

It is also important to consider the potential challenges and drawbacks of FDI for host economies. Sometimes referred to as ‘costs.’ Says the OECD, “Potential drawbacks include a deterioration of the balance of payments as profits are repatriated (albeit often offset by incoming FDI), a lack of positive linkages with local communities, the potentially harmful environmental impact of FDI, especially in the extractive and heavy industries, social disruptions of accelerated commercialisation in less developed countries, and the effects on competition in national markets.”